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If the economy booms, Frank's Welding Supply stock is expected to return 19%. If the economy falls into a recession, the stock's return is projected at 5%. The probability of a boom is 80% while the probability of a recession is 20%. What is the variance of the returns on this stock?
Tim Brown of Omega Drycleaners is planning to invest in a new dry cleaning machine worth $80,000. The life of the machine is estimated to be 12 years and at the end of this period the manufacturer will pay $10,000 for the old machine. The incremental..
To finance some manufacturing tools it needs for the next 4 years, Waldrop Corporation is considering a leasing arrangement. Waldrop Corporation has no use for the machine beyond the expiration of the lease, and the machine has an estimated residual ..
Rocky Sales, Inc., has current sales of $1,268,864 and net income of $203,018. It also has a debt ratio of 47 percent and a dividend payout ratio of 69 percent. The company’s total assets are $587,439. What is its sustainable growth rate? (Round answ..
An all-equity business has 100 million shares outstanding selling for $20 a share. Management believes that interest rates are unreasonably low and decides to execute a leveraged recapitalization ( a recap). It will raise $1 billion in debt and repur..
You manage an equity fund with an expected risk premium of 12.8% and a standard deviation of 42% The rate on Treasury bills is 3.4% Your client chooses to invest $75,000 of her portfolio in your equity fund and $75,000 in a T-bill money maiket fund W..
What specific items of capital should be included in a corporate cost of capital estimate? Should historical (embedded) or new (marginal) values be used? Why? What is your final estimate for Southeastern’s cost of equity? Explain your answer. What is..
Find the value of a bond maturing in 4 years, with a $1,000 par value and a coupon interest rate of 11% (5.5% paid semi-annually) if the required return on similar-risk bonds is 14% annual interest (7% paid semi-annually).
Float Simon Corporation has daily cash receipts of $64,000. A recent analysis of its collections indicated that customers’ payments were in the mail an average of 3 days. Once received, the payments are processed in 2.5 days. After payments are depos..
A zero coupon bond with a face value of $1,000 is issued with an initial price of $475.00. The bond matures in 25 years. What is the implicit interest, in dollars, for the first year of the bond's life?
What is a firm's WACC if the stock has a beta of 1.45, Treasury bills yield 5%, and the market portfolio offers an expected return of 14%? In addition to equity, the firm finances 30% of its assets with debt that has a yield to maturity of 9%. Assume..
The expected return on HiLo stock is 14.65 percent while the expected return on the market is 13.5 percent. The beta of HiLo is 1.21. What is the risk-free rate of return?
Based on the information below, calculate the weighted average cost of capital. Great Corporation has the following capital situation. Debt: One thousand bonds were issued five years ago at a coupon rate of 11%. They had 20-year terms and $1,000 face..
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